Only a fifth of people say they plan to downsize in their retirement, with the top reason being that they are simply ‘too attached’ to their home.
Those nearing retirement age are even less likely to have downsizing plans, according to research by investment platform Hargreaves Lansdown.
Among those aged 45 to 54, just 17 per cent said they would move to a smaller home, while this fell further to 14 per cent among 55 to 64-year-olds.
Those nearing retirement age can downsize to a smaller property to access cash tied up in their home – but a survey had found that only 20 per cent want to do so
This is despite house prices increasing rapidly in the past year, with larger homes benefitting most, meaning downsizers could have more money to buy a smaller property.
However, those moving from larger homes in the countryside or on the edge of towns may find the difference eroded by higher prices closer to town centres.
While 20 per cent said they would downsize, another 38 per cent said they would not and 42 per cent were unsure, according to the survey of 2,000 people.
People often buy a less expensive property in retirement and use the money from the sale of their old home in order to top up their pension income, help out their family financially or simply enjoy their retirement.
Those in the best position to downsize are people who have paid off their mortgage, or a large chunk of it, as they can use the money from the sale to buy their next home mortgage-free.
However, more people are now struggling to pay off their home before they retire – and it can also be difficult to remortgage once you have reached a certain age.
Financial worries also weigh on people’s decisions not to downsize, according to the Hargreaves Lansdown survey.
Around one in ten didn’t believe they would make enough money from downsizing, while almost a quarter said it would be too expensive.
‘The financial reality may not be as positive as the fantasy, with the costs of moving taking a chunk out of their proceeds and leaving them with far less than they hoped for,’ said Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown.
Almost a quarter of respondents said the costs of downsizing would be too expensive
However, the most-cited reason why the respondents didn’t want to live somewhere smaller was that they were too attached to their home, which 28 per cent claimed.
Morrissey added: ‘When you’ve won the race for space, it’s very difficult to give up.
‘Massive house price growth makes the prospect of downsizing in retirement tempting but on closer inspection it is clear not many people are convinced.
‘The pandemic has reminded people how valuable it is to have room to roam at home, and the prospect of giving that up at a time when they may be spending more time at home isn’t appealing.’
Geographically, Londoners were the most likely to want to downsize with 39 per cent having plans to do so in their retirement. This compared to 16 per cent of residents in the South-East.
Homeowners in the capital stand to make significant gains when they sell, especially if they have been in their property for a long time, as prices have increased rapidly.
Those with mortgages outstanding on London homes may also struggle to service a big loan on their retirement income.
What are the options if you don’t want to downsize?
Downsizing in retirement is becoming a necessity, rather than a choice, for many as the cost of living increases and workplace pension plans become less generous.
There are other ways to help fund your retirement, including working for longer or cutting down on other outgoings.
Another option is to release equity from your home, using a lifetime mortgage.
This is when a homeowner takes out a loan from a specialist equity release provider for part of the value of their home.
They can stay in their property and are still the owner, and the loan is then repaid through the sale of the home when they die or go into long-term care.
Downsizing can release extra funds for retirement but often homeowners find that high prices for suitable properties can mean they don’t get as much as they think
However, equity release should be approached cautiously as there are interest charges and other fees involved, and it can make it more difficult to move home again if you need to.
It also reduces the inheritance that an older person may want to leave for their family.
Morrissey adds: ‘This comes at a real cost, not just because of the fees involved, but also because in most cases interest on the loan will roll up, and the amount you owe can easily double before you repay it.
‘Equity release can also stop you from downsizing later if you change your mind, if the debt has eaten so far into the equity in your home that you can’t afford a smaller place.
Another option is to take out a Retirement Interest-only mortgage (Rio).
Here, the homeowner remortgages their property with a mainstream lender, but they do not need to pay any more off the balance of their home – they only need to pay the interest on the loan.
This can reduce the monthly outgoings, and again the loan only needs to be repaid when the homeowner dies or goes into care.
Unlike with equity release, however, the borrower will need to have enough income to pass a bank’s affordability assessments.
It is also possible to continue with mainstream mortgages, if the borrower is under lenders’ minimum age thresholds and has the income to do so.
They could then cut their monthly payments by extending their mortgage term, or release some equity by remortgaging to a higher loan-to-value product.
Morrissey added: ‘The right answer is different for everyone, but it’s important to consider it all carefully before you rule out downsizing.’
Equity release: How it works and where to get advice
This is Money has partnered with Age Partnership, a firm of independent advisers who specialise in finding retirement mortgages and equity release that works for you.
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